Nvidia (NVDA -0.99%) has been making some interesting investments lately, a few of which should be concerning for investors, if not outright red flags.
The AI chip giant just announced it was making a $105 billion investment to support the development of an enormous data center in Ohio that will be leased by OpenAI, the company behind ChatGPT.
OpenAI is a major customer of Nvidia, so the deal will presumably help it continue to purchase Nvidia's expensive graphics processing units and systems.
Image source: Getty Images.
Previously, Nvidia invested billions of dollars in Anthropic, which owns the Claude chatbot, and in the cloud-computing firm CoreWeave. It has also partnered with investment firms Apollo and Blackstone to arrange hundreds of billions in financing for new data centers.
Some observers say Nvidia is engaging in what's known as circular financing. That is, it is investing in AI firms and data centers so that those companies will build more AI infrastructure that requires Nvidia's powerful chips. So, in a way, Nvidia is providing financing for other companies to buy its products, and its own revenue is boosted by capital it has deployed.
Circular financing deals took a toll on hardware firms during the dot-com crash
The practice is reminiscent of what occurred during the dot-com boom of the late 1990s, when Cisco Systems, which made the networking hardware that was the backbone for much of the internet, arranged similar deals for its customers. That inflated the company's revenue. Other internet firms made similar deals.
When the internet bubble burst, Cisco's share price fell precipitously from a 2000 peak of around $77 to around just $12 in late 2001. Cisco shares didn't recover fully from that loss until 2025.
Of course, the internet infrastructure built during the dot-com bubble proved highly productive for the U.S. economy, and it's likely that the data centers financed by Nvidia will too. But that will be of little consolation to Nvidia's shareholders should the market decide that the company's revenue and profits are not organic, but self-financed.
Also, if Nvidia invests in customers that later fail or can no longer pay for its products, it will lose both those revenue streams and its investments, which would damage its finances.
All that said, Nvidia is an enormously successful company by almost every metric. In its fiscal 2027 first quarter, which ended April 26, its revenue climbed 85% year over year. It more than doubled its annual revenue in fiscal 2025 and fiscal 2024, and grew its top line by 65% in fiscal 2026. Earnings per share soared 215% last quarter and 147% last year.
NASDAQ: NVDA
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The company's chips are so powerful that the U.S. government restricts their sales to companies in certain nations.
So Nvidia looks strong at the moment, but the vendor financing it's increasingly engaging in is something for investors to watch closely.
